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The first-quarter financial results are in, showing early casualties in the construction and real estate sectors. Construction behemoth Arabtec has dipped into the red after a turbulent year and its second consecutive quarterly loss, while developer Union Properties posted an 84 per cent drop in firstquarter net profits compared to the same period last year.
But Ahmad Al Marri, General Manager of Union Properties (UP), tells PW this was no cause for concern and the quarter’s Dh28.14 million net profit was a result of quarterly fluctuations. He points out that while the company had Dh179.79 million in net profit in the same period last year, the same quarter in 2013 saw only Dh21.9 million.
“You can’t look quarter to-quarter — it depends on the situation in that quarter,” says Al Marri. “Sometimes there’s a collection of revenue in that quarter or completion of projects.
“We have to look at the performance of the year. There are no worries for quarter one for the company, because it’s normal. The rest of the year will get better.”
While Al Marri acknowledges companies in the region are facing difficulties given the more than 60 per cent slump in the price of oil since last June, he says UP is prepared for any hurdles.
“This year will be up and down and we know that,” he says. “We were studying the markets and knew it would happen this way, so we are ready for it.”
Al Marri assured shareholders at UP, whose share price retreated 9.7 per cent following the announcement of first-quarter results, that it will complete its three major projects this year in Motor City, Dubai Investments Park and Uptown Mirdif.
“Don’t worry about our results. Wait for our next [ones],” he says.
Arabtec did not return PW’s request for comment, but the company earlier cited spiralling costs and “economic and political circumstances in the region” for its poor performance. The company, which had been forecast to make a first-quarter profit of Dh20 million-Dh95 million, posted a Dh279.8 million loss.
The firm has said that it had been impacted by the drastic fall in oil price and clients downscaling projects.
Market analysts say it is difficult to glean much from the companies themselves, but there has been talk of problems deep inside Arabtec over the past months. It emerged in April that Arabtec founder Riad Kamal, who started the company in 1975, had resigned from the board some 18 months previously, while chairman Khadem Al Qubaisi had also departed.
Earlier, Arabtec stock had tumbled from Dh7.70 a year ago to just Dh2.61 by the
end of last June, prompting the resignation of then-CEO Hassan Ismaik along with the departure of many other senior management figures.
But it’s not clear exactly how the significant losses from these two blue-chip property companies correlate to the state of the UAE property market.
Faisal Durrani, International Research and Business Development Manager at real estate consultancy Cluttons, says there are unique challenges for developers whose portfolios rely on petrodollars.
“There is this risk that any developer runs particularly at the moment when you engage in infrastructure projects in countries with a high reliance on hydrocarbon income, because the minute you have an oil price shock, certain governments will rein in public spending and infrastructure projects are usually the first to be cancelled or put on hold because that’s the easiest place to make savings,” he says.
As the highly sentiment driven regional stock market is tied to the performance of oil, swings in stocks are to be expected with unstable oil prices, he says. Companies that have diversified portfolios, such as Nakheel and Emaar Properties, are better able to insulate themselves.
Nakheel had a runaway success with a 115 per cent net profit increase over the same period last year, returning an impressive sum of Dh1.35 billion. Emaar’s recently floated Emaar Malls Group saw a 32 per cent jump in first-quarter profits, taking in Dh433 million. Dubai Investments had a more modest 6.5 per cent net profit increase over the same period, amounting to Dh282.8 million.
Peter Cooper, Editor of Arabianmoney.net, says Dubai Investments’ results probably give a better picture of the local economy than the real estate businesses that always go through cyclical waves.
However, he recommends international investors look elsewhere for good returns this year due to a high dollar and flatlining oil prices having a big impact on trade across the GCC.
“Profit growth is slowing and this may indeed be the top of the cycle before a downturn.”
Source: Amanda Fisher, Special to PW